It’s not easy to make predictions about what 2023 might look like for crypto assets and related markets.
And while it is generally difficult to make long-term predictions about such random markets and economic events, this year the number of unknowns and variables on the horizon makes the exercise even more difficult.
Everybody knows that uncertainty, in principle, is bad for business.
Regulations amidst failures and new hopes: potential predictions for the crypto market in 2023
When looking at it from a regulatory perspective, 2023 will be characterized by the arrival of a number of important regulatory provisions, both at the European level and at the national level, in both tax and anti-money laundering.
In theory, this should be a good thing, because it should help to create a framework of certain rules and thus provide greater clarity for users and operators.
Unfortunately, however, this is not exactly the case.
On the side of Italian law, we have already had the opportunity to comment on the package of regulations that introduce, for the first time, a fiscal discipline on the income and obligations related to the holding of cryptocurrencies and other crypto-assets.
The limitation of this legislation is that, as has already been pointed out, on the one hand it still leaves unresolved many aspects of the tax treatment mechanisms and the exact scope of various obligations it introduces; on the other hand it seems not to take into consideration the specificities and peculiar functions of the various particular types of crypto assets.
In a nutshell, the one that has just been approved seems to be a discipline carved out with respect to the typical functions of cryptocurrencies, intended as an alternative means of payment to legal currencies, but it ends up embracing and finding application indiscriminately, to any type of cryptographic asset, even if it is completely devoid of monetary or even financial functions.
This means that we will have to wait for a settling-in period, made up of interpretative acts by the tax authorities, litigation that will generate interpretations and case law precedents, in order to have a clearer application picture. And unfortunately, it is impossible to predict how long this settling period will be.
On the European front, a wave of important regulatory measures is being prepared.
The first is the famous MiCA (i.e., the European regulation on Markets in crypto-assets), which aims to introduce a set of rules that primarily affect operators who intend to enter the market by offering their services to the public, and to which rules to protect competition and end users are aimed at being extended, which should increasingly resemble the system of safeguards that exist in the field of conventional banking and financial services.
Aside from the MiCA, what is on the horizon is the arrival of a series of regulations and directives in the area of anti-money laundering, the contents of which are not yet fully defined: in particular, there is talk of a new anti-money laundering regulation, the new AML directive that would replace Directive 2015/849/EU (the Fourth AML Directive, itself amended by the Fifth), and, within this regulatory framework, also the already well-known European regulation on the transfer of funds (TFR), which is now on the home stretch in the path of adoption.
We have already discussed these measures more analytically.
The regulatory implications for the entire crypto market
Although the contents of all these important bodies of legislation await further detailed definition, according to official communications, it is quite clear that a series of measures will be introduced that, on the premise of preventing the use of financial resources (through the use of cryptocurrencies) to fuel illicit trafficking, are likely to have a major impact on cryptocurrency transactions, because there will be major limitations and an increase in attention thresholds, reporting thresholds, and ultimately the ability of supervisory and regulatory authorities and operators to act as intermediaries.
The fear is that the emerging set of AML regulation provisions could become a real bottleneck in which cryptocurrency asset transfers could eventually run aground.
In 2022, the cryptocurrency market has held up, in spite of the many of adverse events (from bankruptcies of primary platforms as in the case of FTX to the many attacks by important institutional figures from major European currency and financial bodies) and in spite of the proverbial emotionalism of this market.
But how will the entire ecosystem react when faced with possible restrictions and significant limitations on resource deployments that pass through crypto assets?
Probably not well.
However, the fact that such measures could have an economically significant (and potentially devastating) impact on an entire economic and productive sector should prompt a debate about the proportionality of these measures with respect to the set of principles of freedom of economic enterprise, free movement of services and capital, and protection against unjustified market restrictions, all of which are crystallized in the treaties and fundamental charters of the European Union.
On the one hand, it is worrying that the focus of discussions in the European institutions to date has been exclusively on aspects related to the possible use of cryptographic assets in correlation with criminal and/or illegal activities; on the other hand, it seems to disregard a fact that is widely monitored and established. Namely, that, in practice, the incidence of the use of crypto assets for the benefit of or in the context of illegal activities is negligible in magnitude.
Perhaps this approach will gradually be outgrown as the market as a whole matures further, when greater reliability of exchange operators and platforms is perceived, not least because of the obligations that may flow from the entry into force of the MiCA rules.
That is, when the crypto world, in its evolutionary journey, comes to resemble the world of conventional banking and finance a bit more.
However, this may mean that this kind of world will have then become something far removed from what was envisioned by Satoshi Nakamoto in his famous manifesto on the peer-to-peer electronic money system.